Equities and the Economy

Good morning.  I told you it was earnings season and U.S. stocks felt the brunt of it yesterday after a couple of heavy weights gave guidance.  Wal-Mart, the world’s largest private employer, surprised investors yesterday saying it expects sales to be flat in 2016 and giving an even worse forecast for 2017 saying it expects earnings to drop 12% that year citing in part its pledge to raise wages.  The stock got whacked 10% wiping out $10 billion (yes, that’s a “b”!) of market capitalization.  The other behemoth dragging equity prices down was Boeing which fell 4.3% on concerns about aircraft demand following Delta’s earnings call yesterday which cited a “huge bubble in excess wide-body airplanes.”  When the bell rang the Dow was down 157 points, 0.92%, to 16,925 and the S&P 500 ended off 9 points, 0.47%, at 1,994 (and right on short term support with the next support at 1988).  The Nasdaq fared best only down 0.29%, 14 points, at 4,783.

Regarding economic reports, yesterday the Labor Department reported that the producer price index fell 0.5% in September and 1.1% for the 12 month period blaming the weakness on large declines in energy prices.  Wall Street was forecasting a decline of only 0.2%.  The less volatile core PPI, which excludes food and energy, was down 0.3% for the month and this too was “worse” than estimates.  At the same time of day, the Commerce Department reported retail sales rose 0.1% in September and 2.4% for the 12 month period ending September, and like PPI, was disappointing with economists expecting a +0.2%.

The Fed released its closely followed Beige Book yesterday which is released a couple of weeks before its meetings and in summary it was a mixed bag but there was one common theme among all five Fed districts, the strength of the U.S. dollar was a “headwind” for businesses.  With this report and weak equity prices the U.S. dollar tanked, which should help U.S. exports.

This morning U.S. equities are getting a little bounce this morning with the Dow up 37 points.  Chatter.

Oil

Yesterday’s price action in oil was the most sedate I’ve seen in many, many weeks with WTI down 2¢ to $48.64 and Brent off 9¢ at $49.15.  After the bell the API released its inventory data, a day late due to the holiday, reporting that crude stocks rose a stunning 9.3 million barrels, with 1.4 million of that at Cushing, OK, the Nymex futures contract delivery point.  WTI prices immediately fell in after-hours electronic trading but has recovered somewhat being down 81¢ this morning.  The DOE releases its more important report today at 9:30, also a day late.  WTI is currently right on a support line dating back to late August which is of material importance.  It needs to hold here for the bulls to remain comfortable.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices continue to inch higher closing up an even 2 cents yesterday at $2.518 for the second time in a month amid short covering.  I’ve mentioned a couple of times the market is egregiously over sold and a bounce is due.  We’re seeing it, although not in the typical fashion.  Usually I see a “knee jerk” reaction but this move has been a slow grind up.

Today the EIA releases its weekly storage report with the market looking for a 90 Bcf injection.  This compares to last year’s injection at this time of 96 Bcf and the five year average of 87 Bcf.  Prior to the report’s release at 9:30 CDT natty is popping 4.2¢ on 1) the current and  brief cold snap in the eastern third of the country, and 2) continued short covering.

Elsewhere

(Sorry, no Elsewhere today.  Took my daughter to school setting me back.  I promise there will be an Elsewhere tomorrow.)